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Coinstar Investors Propose $6 Million Settlement Over Redbox Stock Dive

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Investors have filed to settle a lawsuit that claims Coinstar wrongfully juiced its share price by failing to disclose that some studios had shut out its movie-rental service, Redbox, from the new release market.

In documents filed Friday in Seattle, investors led by a Rhode Island pension fund proposed a $6 million settlement to compensate them for losses they incurred in January, 2011.

At that time, Coinstar’s stock price tanked in response to the company’s revelation that major studios had forced Redbox to delay new releases by 28 days. The studios imposed the delay as part of a “windowing” strategy to ensure Redbox’s $1 rentals didn’t undercut store sales.

The delay hurt Redbox’s business strategy and, by extension, Coinstar, which counted on Redbox for 80% of its revenue.

In a series of lawsuits filed in early 2011, investors claimed Coinstar and its executives committed securities fraud when when they failed to disclose the delay and instead issued artificially rosy earnings predictions.

The proposed settlement claims that $6 million is a reasonable recovery of the $96 million that investors allegedly lost when Coinstar’s share price fell.

The settlement, which came after months of negotiations, must be approved by the court. If a judge gives the go-ahead, the money will then by divided proportionally among investors who file claims. Lawyers typically take 25 percent of any class action award.

Coinstar’s video rival Netflix (NSDQ: NFLX) is embroiled in a similar lawsuit. Last month, investors sued Netflix and its executives on the grounds that they failed to disclose that the company would be forced to pay significantly more for its content.

Coinstar did not immediately return a request for comment. The company’s share price closed today at $58.22 which is approaching the $66 high it reached in fall of 2010.

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